#TaxmannPPT | GST Implications on various Compensations & Refund Time-limits thereon | Nitya

WEBINAR – TAXABILITY OF LIQUIDATED DAMAGES & SC EXTENSION ORDER

Key Accolades About NITYA Tax Associates 

Law firm specializing in Indirect Taxes, Legal Metrology and other Allied Laws

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Serving diverse clientele comprising India’s leading Domestic and Multinational corporates

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Team of 5 Partners and 50+ members with experience in India’s leading Accounting and Law Firms

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Service areas include Advisory, Litigation, Healthcheck, Policy Advocacy, Compliances etc.

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TAXABILITY OF DAMAGES, PENALTY AND COMPENSATION

POSITION UNDER SERVICE TAX Position under Service Tax & GST

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Afterwards 2012, ‘agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act’ was a Declared Service

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Initially, Schedule II of the CGST Act provided for activities to be treated as supply of goods or services

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However, Government vide amendment in CGST Act in 2018 made it explicit that under the CGST Act reference to Schedule II is for classification purposes only

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MEANING OF TERMS INVOLVED

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WORD

MEANING

Liquidated Damages

Sum that contracting parties agrees to pay to the other party for breaching contract

Penalty

Punishment for doing something against a law

Consideration

A recompense or payment, as for work done

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NATURE OF LIQUIDATED DAMAGES

Damages/ Compensation lacks the characteristic of supply

Recipient does not get benefitted from damages/compensation

Consideration is in nature of reward for promise, damages are compensatory in nature

Damages/compensation cannot be treated as at will of recipient, it is rather payment to compensate loss suffered by receiving party

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CONSIDERATION V. COMPENSATION

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 Compensation / liquidated damages received cannot be termed as 'consideration'

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 Penal clauses in agreements provides safeguard to the commercial interest of parties  Primary intention of the parties involved in an agreement is not for recovering damages of breach of contract  Consideration is a result of active actions however damages represents passive actions

JURISPRUDENCE Ruling

Issue

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GE T & D India Limited (Madras HC)

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Notice pay recovery Rajasthan Rajya Vidhyut Prasaran (CESTAT)

Lemon Tree Hotel (CESTAT)

Cancellation of advance money

South Eastern Coalfields (CESTAT)

Compensation on breach of contract

K.N. Food Industries (CESTAT)

Compensation for allotting lesser work than contracted

Decision

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JURISPRUDENCE Advance Ruling & Judgements

Issue

Bai Mamubai Trust (Bombay HC)

Damages due to illegal possession

Bharat Oman Refineries (MP AAAR) Syngenta India Private Limited (MAH AAR) Achampet Solar Private Limited (TEL AAR) North American Coal Corporation (MAH AAR) Halliburton Offshore Services (AP AAR)

Notice pay recovery

Liquidated damages

Damages in respect of damaged tools

Decision

IMPLICATIONS OF SC EXTENSION ORDER

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TIMELINE OF EXTENSION ORDERS

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First extension order, period from March 15, 2020 to be extended

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March 23, 2020

January 10, 2022

Period from March 15, 2020 to February 28, 2022 to be excluded

Period from March 15, 2020 to March14, 2021 to be excluded March 8, 2021

July 20, 2021

CBIC Circular clarifies SC order applicable to limited cases

Order dated March 23, 2020 restored April 27, 2021

May 28, 2021

Press Release clarifies timelines as per SC order would prevail

RELAXATION OF LIMITATION PERIOD

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Relevant Points in SC order  Limitation prescribed under any general or special laws for all judicial or quasi-judicial matters  Order of March 2020 stated all petitions / applications / suits / appeals / all other proceedings covered  Time period from March 15, 2020 to February 28, 2022 to be excluded  Where balance limitation period as on March 15, 2020 was less than 90 days – 90 days allowed from March 1, 2022 onwards  Where limitation period more than 90 days – Limitation to continue w.e.f. March 1, 2022

Fate of specific extensions under GST ?

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SPECIFIC EXTENSIONS UNDER GST Notifications under GST Law

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 First Extension – Compliance / completion of any action from March 20, 2020 to June 29, 2020 - extended to June 30, 2020

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 Certain exception to specific activities like tax payment, registration, e-way bill, ITC matching etc.  Time limits given under the Excise, Customs and Service Tax laws falling between March 20, 2020 and December 30, 2020 till December 31, 2020  Second extension – Compliance / completion of any action from April 15, 2021 to June 29, 2021 - extended to June 30, 2021

CIRCULARS INVOLVED CBIC & CBDT Circular

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 CBDT Circular No.10/2021 for filing appeal before CIT(A) – More beneficial extension to apply  CBIC Circular No.157/13/2021-GST bifurcated cases in different baskets  SC Order to apply to appellate proceedings, not to original jurisdiction (including issuance of SCN)  No extension applicable on proceedings to be initiated by taxpayer  Any other timelines under GST law also not extended  CESTAT in internal Circular clarified that condonation application not to be filed for cases covered by SC order

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JURISPRUDENCE ON REFUND

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Ruling

Court

Gamma Gaana Limited

Allahabad HC

Saiher Supply Chain Consulting

Bombay HC

GNC Infra LLP

Madras HC

Decision

RELAXATION OF LIMITATION PERIOD – EXAMPLES

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90 days from March 1, 2022

February 2018

February 28, 2022

March 20, 2020 Period between March 15, 2020 to February 28, 2022 to be excluded

Any refund due on or after March 15, 2018 can be filed till May 30, 2022*

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RELAXATION OF LIMITATION PERIOD – EXAMPLES

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Relevant date for computation of 2 years under Section 54

Last date to file refund application under Section 54

Balance period covered during extended period

Last date basis SC Extension Order

March 20, 2018

March 19, 2020

4 days

May 30, 2022

April 20, 2019

April 19, 2021

400 days

April 5, 2023

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Disclaimer: This webinar / presentation is intended solely to provide information. Information presented in this webinar is provided for general purposes and should not be construed as professional advice from any of speakers or NITYA Tax Associates.